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Series 7 practice questionmediumMargin Accounts — Long Margin

A client bought $100,000 of stock on margin with a $50,000 debit balance. The stock drops to $80,000. What is the equity percentage?

  1. A25.0%
  2. B37.5%✓ Correct answer
  3. C50.0%
  4. D62.5%
Explanation

Why B — 37.5%

Equity = Market Value - Debit Balance = $80,000 - $50,000 = $30,000. Equity percentage = Equity / Market Value = $30,000 / $80,000 = 37.5%. Note that while the debit balance remains $50,000 (the loan doesn't change when the stock price changes), the equity has declined from the initial 50% to 37.5%. The account is above the 25% maintenance requirement but below the 50% Reg T requirement.

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